Linkedin Article Published by Jo Lloyd, Partner – Nina & Pinta
RFPs have long been a thorn in the side of the corporate travel industry, and try as we might, there doesn’t seem to be anything else to replace it as a means of negotiating agreements between buyers and suppliers.
But perhaps we’re looking at it the wrong way. I’d like to suggest a more collaborative approach to the airline RFP in particular – a change in the way airlines view a corporate customer and, in turn, how a corporate customer views an airline. I truly believe there is some middle ground that should make for a more beneficial outcome for both parties. Change is already in the air with the advent of NDC, and I am optimistic that a smoother process moving forward will emerge.
As we know, airline spend is generally the single biggest spend item for corporate travel programs, so the stakes are high in securing the right deal. The airlines’ current business model is predicated on rewarding those customers who support their most competitive routes, and not necessarily their total spend. This is where there is a real opportunity to change the way we source airline programmes.
The highly sophisticated algorithms fed into yield management systems to produce a discount on a route by route basis and before we single out the airlines here, its worth noting that they are not alone in this strategy as hotels do a similar thing.
But focussing on the airlines for a minute, what if the airlines looked at corporate customers in a more holistic way? A way that would mean both sides coming together with the same focus to create a mutually beneficial relationship?
I hear the issue being voiced from procurement people who may not be as familiar with the travel industry industry and its idiosyncrasies. They say, ‘My other major suppliers support me by offering deals across my entire spend so I need to be supported by my preferred airlines in the same way.’
I appreciate that the corporate customer accounts for between 30% – 40% of an airline’s overall business, but crucially, it is the most profitable segment of their business and as a low-margin industry it would make sense for airlines to view their corporate customers in a different and more strategic light.
The airlines also operate in a tough market. Gone are the days when each country had one national carrier; today they compete with low cost carriers undercutting their profits as well as other regional and national competitors so they must focus on their strategy if they want to keep their most profitable customers.
If a corporate is spending x amount of millions a year on getting their travellers from A to B, and the airline has a network to support it, should it really matter where those routes are? Currently the customer based in the UK or US has more leverage on a highly competitive route such as London-New York than on a non-competitive route such as London-Philadelphia. (these are general examples and not a call out to specific airlines). By focussing on the competitive routes only, however, the corporate incentive to support the supplier across the board is diminished.
If airlines instead offered more equitable discounts across the total of their corporate spend, rather than a discount only on what might be 40% of their spend, wouldn’t that make much more commercial sense? That way, airlines would be recognising the true value of a corporate customer and view them as strategic partners, selling to them based on value rather than on price.
The classic agreement is designed to support incremental spend over a 12 or 24-month period based on historical data, but why not negotiate at more regular intervals, ignoring the historical patterns and instead looking at projected spend? We are starting to see a bit of a shifting dynamic in this direction in the hotel space, so wouldn’t it be great if we could also do this with air.
Businesses are dynamic, so shouldn’t their supplier agreements reflect that? Agreements could then be monitored on a more regular basis flexing the commercials in line with the success of the agreement. This would also allow for a shift in business to be rewarded through the lifetime of the agreement.
Encouragingly, a couple of more enlightened airlines are starting to think this way and are trying to take a different strategic view. Even with the system constraints they have, it’s a step in the right direction.
I believe NDC (New Distribution Capability) will drive more change and support this approach in the future, as this new IATA standard will give airlines greater visibility of the customer journey, as opposed to only seeing the ticketed data.
It will also throw light on how value is perceived by the corporate. IATA’s next phase – One Order – will push the boundaries still more.
The change in how airlines view their corporate customer can start with a conversation with the aim of building much more flexible solutions, and can end with a far more fruitful win-win situation for both parties.
Surely that’s a good thing for all.
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